FCNR(B) revival: Jefferies’ top bank picks for 2026

RBI revives FCNR(B) deposits with a hedging-cost sweetener

Large Indian banks with strong non-resident Indian (NRI) franchises are likely to be the main beneficiaries of the Reserve Bank of India’s decision to revive the FCNR(B) deposit scheme and bear the cost of hedging, according to Jefferies. The brokerage argues that this combination improves funding economics for banks and could pull in meaningful foreign currency inflows if the final operating norms are favourable. The move is part of the RBI’s June 5 package aimed at attracting foreign capital.

Jefferies highlights that the biggest advantage should accrue to banks that already have scale in NRI acquisition and servicing. That includes large private lenders and State Bank of India, along with select foreign lenders that have established overseas reach. For investors, the renewed focus on foreign currency deposits also arrives alongside broader RBI policy stability and regulatory changes that are reshaping bank balance-sheet planning.

What the RBI announced and the timeline that matters

Under the RBI’s June 5 package, the central bank said it will bear the full hedging cost for fresh FCNR(B) deposits with maturities of 3-5 years that banks mobilise until September 30, 2026. The explicit bearing of hedging costs is a key difference for banks because currency hedging can otherwise reduce the net benefit of foreign currency deposits.

Jefferies frames this as a potential catalyst for deposit inflows, especially if banks can offer attractive terms to NRIs without absorbing the hedge expense. But the brokerage also flags that actual inflows will depend on the final norms and on how quickly banks execute overseas mobilisation campaigns.

Why HDFC Bank, ICICI Bank and SBI stand out

Jefferies names HDFC Bank, ICICI Bank, and State Bank of India (SBI) as key beneficiaries of the FCNR(B) revival, citing their strong NRI deposit franchises. It points to their extensive overseas customer bases, branch networks, and established deposit-gathering capability as advantages that smaller banks may struggle to match.

The argument is largely about distribution and trust. FCNR(B) deposits are typically relationship-driven, and large banks often have deeper NRI engagement through remittance corridors, wealth offerings, and dedicated NRI banking teams. Jefferies expects these banks to be better placed to capture incremental inflows if the scheme gains traction.

2013 as the reference point: USD 34 billion inflows

Jefferies draws a comparison to the 2013 FCNR(B) swap window, which helped India attract USD 34 billion in foreign currency inflows. While the current measure is not described identically, the historical reference is used to illustrate how a well-structured RBI incentive can change the economics for banks and depositors and scale up flows.

The brokerage’s emphasis is that large banks can replicate the mobilisation pattern seen earlier, assuming pricing is competitive and operational details are supportive. Still, Jefferies does not present a specific inflow estimate for the current window, focusing instead on relative positioning among lenders.

Bank stocks: a sharp split, led by HDFC Bank’s fall

Jefferies’ note also highlights how bank stock performance has diverged in 2026. HDFC Bank is down 24% year-to-date, while ICICI Bank is up 7%, Axis Bank is up 4%, and SBI is up 11%. Jefferies says the divergence has “no operational explanation” and is “entirely governance-driven.”

It adds that HDFC Bank now trades at a 20% price-to-book discount to ICICI Bank, which it calls anomalous given HDFC Bank’s stronger asset quality profile. Jefferies links the valuation gap to governance uncertainty rather than core business momentum.

The governance trigger and what the market reacted to

The note references a key governance event: Chairman Atanu Chakraborty’s abrupt resignation on March 19 citing ethical concerns. That episode triggered a near-9% single-day drop and erased about ₹1 lakh crore in market capitalisation, as cited in Outlook Business.

Jefferies contrasts this with ICICI Bank, Axis Bank, and SBI, which did not face a comparable governance shock in the same period. The brokerage also notes that a governance review is now nearing a clean chit, and it sees meaningful upside potential once leadership clarity arrives.

Regulatory and macro backdrop: FX rules, West Asia, and rate space

Jefferies notes another source of near-term pressure: stricter RBI rules on banks’ open foreign exchange positions introduced on March 25, 2026. It says this added a layer of pressure on trading revenues in the near term.

The brokerage also points to easing West Asia tensions as a separate catalyst in its framing. It argues that crude spikes tighten the RBI’s room to cut rates, raise import bills, and weigh on bank net interest margins (NIMs). Jefferies’ view is that a sector-wide rerating needs both triggers to work: management clarity and a calmer macro backdrop.

Targets and ratings: Buy calls remain in place

Jefferies has maintained a Buy rating on HDFC Bank, ICICI Bank, and SBI, while indicating the maximum upside potential in HDFC Bank.

• HDFC Bank: Target price of ₹1,200, implying about 20% upside. Jefferies expects loan growth broadly in line with system averages, supported by merger synergies, a strong retail franchise, and a sticky deposit base.
• ICICI Bank: Target price of ₹1,760, implying about 29% upside. Jefferies calls ICICI’s profitability “best-in-class” among large private peers, citing risk-adjusted returns and balanced retail and SME growth.
• SBI: Jefferies describes SBI as a “steady compounder,” pointing to improving return ratios, capital adequacy, and its deep deposit franchise, but the note excerpt does not provide a target price.

RBI policy stability and reforms: what else is changing

Separate from the FCNR(B) discussion, the broader RBI policy environment is also in focus. The repo rate has been kept unchanged at 5.5%, and commentary referenced a benign inflation trajectory with FY26 CPI at 2.6% and resilient growth with FY26 GDP at 6.8%.

Regulatory reforms cited include the proposed withdrawal of the large exposure framework introduced in 2016 and steps that could ease credit restrictions, potentially supporting corporate lending. Another item mentioned is a shift toward a risk-based premium model, where banks currently pay a premium of 12 paise per ₹100 of assessable deposits, with stronger banks expected to save more under a revised structure.

Key facts table

Market impact: funding, deposits, and valuation signals

If FCNR(B) deposits scale up, banks that can mobilise NRI deposits quickly could see improved foreign currency funding economics because the RBI is bearing hedging costs for eligible tenors. Jefferies’ view is that this tilts the playing field toward banks with established NRI franchises, rather than those starting from a smaller base.

In equity markets, Jefferies highlights that valuation dispersion is already wide, especially between HDFC Bank and peers. The brokerage links the gap to governance and near-term noise rather than operating performance, and it sees rerating potential if management clarity emerges and macro risks, including crude-linked pressures, ease.

Analysis: why this matters for Indian banking in 2026

The FCNR(B) revival sits at the intersection of capital flows and banking liability management. By absorbing hedging costs for eligible deposits, the RBI is effectively changing the all-in cost equation for banks, which could make foreign currency deposit mobilisation more viable for a defined period.

Jefferies also ties the moment to a broader transition cycle in banking regulation. It notes that larger banks with stronger capital buffers are better positioned for changes such as the Expected Credit Loss (ECL) regime, with the transition stated to start from April 2027, and to benefit from easing of credit restrictions that can lift corporate lending.

Conclusion: FCNR(B) window opens, focus shifts to execution

Jefferies expects HDFC Bank, ICICI Bank, SBI, and select foreign lenders to be best positioned to benefit from the RBI’s FCNR(B) revival, mainly due to NRI franchise strength and distribution reach. The RBI’s commitment to bear hedging costs for fresh 3-5 year deposits until September 30, 2026 creates a clear execution window for banks to mobilise foreign currency liabilities.

For markets, the next set of signals will likely come from how quickly banks report incremental FCNR(B) traction under the new terms, and from any further clarity on governance and macro risks that Jefferies has flagged as key rerating triggers.